It is nowadays generally accepted that inward foreign direct investment (FDI) is crucial
as a source of technological spillovers. One of the objectives of this paper is to review the
evidence on the quantity and quality of human capital employed by domestic and foreign
firms. We examine whether spillovers accrue from MNE activity, and provide a
preliminary understanding of why MNE spillovers remain somewhat ambiguous,
particularly in developing countries, paying particular attention to human capital
development. Our analysis is supported by data from the Innovation Survey in Argentina.
On the whole, MNE subsidiaries hired more professionals than domestic firms of the
same size, possessed a more skilled labour force overall, and spent more on training than
similar domestic firms. Subsidiaries in Argentina effectively have a higher labour
productivity and pay higher wages. Yet, in terms of knowledge creation and utilisation,
there was little to differentiate affiliates from domestic firms.
While there is little evidence of widespread FDI spillovers, where spillovers did
occur, it was where domestic firms demonstrated high investment in absorptive
capacities. Our analysis also suggests that much of MNE activity - particularly after
liberalisation - has been of the kind that by definition has limited opportunities for
linkages and spillovers. These are activities in which MNEs may simply be able to
generate economic rent from their superior knowledge of markets, and their ability to
efficiently utilise their multinational network of affiliates. These assets are not generally
easily spilled over to domestic firms.

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The aim of this work is to conduct a theoretical and empirical investigation of how the market
institution performs in the context of technology and knowledge transfer. The notion of political
markets, first introduced by Adam Smith, is extended to the artifacts of technology and their
associated factor markets. The paper develops the notion of political markets by drawing upon an
empirical case that reconstructs the chain of events related to the transfer of flexible manufacturing
systems (FMS). The case account for the various actors and institutions involved in the technology
transfer, including the firms on both sides of the market, the government, the engineering-scientists,
the economists, the union representatives and the machinists.
It is argued that Natural markets is a special case of political markets in which technologies and
hybrid entities and identities produce both the Natural market as well as its master – the pure
technological relations. Neither the Natural market, nor Homo economicus can be brought into
existence without pure technological relations. The existence of the latter is a necessary condition
for the existence of the two former, as has already been recognized by neoclassical economics. The
present work makes a constructive contribution to neoclassical economics in this respect, by
describing and analyzing all the work of purification that enters into the task of bringing the
necessary conditions into existence. Indeed, the process of purification that brings purified
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technologies, natural markets and rational identities like homo economicus into existence, require
huge investments, as do their maintenance. Technical knowledge turned out to be no exception. As
the case suggests, technical knowledge was not just a given condition, but became a produced
outcome. Yet, the process of knowledge production continued, transforming given technical
knowledge in unexpected ways. Technical knowledge also became a negotiated outcome during the
transfer of FMS. Hence, when market transaction takes place, knowledge it self can be transformed,
and with it, the conditions for conducting the market transaction. So, the notion of political markets
proposed here, suggests that knowledge can be both premises as well as an outcome of market
transaction – as knowledge, its status and distribution - can be negotiated in the process.
Instead of criticizing Homo economicus and (neo) classical economics, the notion of political
markets thus proposed imply a constructive contribution to economics, notably to the core of neo
classical economics:
Through out this paper, it is argued with reference to both theory and own empirical fieldwork, that
neoclassical economics participate in the successful purification of technological relations. Yet, in
order to provide for an explanation of such a successful outcome, it is not enough to account for
economists among themselves. As has already been suggested by Callon (1998) and the associated
work on the anthropology of markets, also such material associations as computer based
calculations and simulations of the macro-economy must be brought into the explanation. In more
specific terms, the puzzling ‘residual’ in the neoclassical production function can be explained by
now also taking into account the many subtle ways economics itself interfere in making up the
residual. Neoclassical economics only have to refine their production function by adding to it the
significance of material associations such as computer based calculations and simulations of the
macro-economy. Done properly, a revised macro-economic model would emerge, capable of
handling ‘market failures’ in new ways. Instead of attributing all failures to the market and no
failures to technology, a more symmetric distribution of failures between the two entities would be
allowed for. Further more, each time a ‘residual’ emerges from applying the revised model, it is no
longer simply due to ‘technical change’ but also due to ‘market failures’. Hence, such a revised
macro-economic model not only allow neoclassical economics to maintain the distinction between
technology and the market but also allows for the flexibility of including those entities previously
excluded, that is, the material associations and inscriptions that participates in making up the
distinctions between the two.